One of the first questions that all the Labour leadership contenders have been asked by journalists – it’s almost like it is co-ordinated – was “did Labour spend too much before the 2010 Election?”

The journalists know it puts the candidates on the spot because it was an audience question (probably from a planted Tory) during the Question Time session with Ed Miliband. It raised an incredulous titter, followed by denunciation in the media, when Ed answered “no”.

So far the candidates that have faced the question have looked or sounded flustered and uncertain and have dissembled. Yvette Cooper got lost in a long description of the banking crisis, which wasn’t the question. But Liz Kendall got it totally wrong. She said “yes”.

As on many things, Ed Miliband was absolutely right. But the blame game is being played and history is being rewritten. I expect it from the Mandelsons and Milburns of this world, but members of his shadow team should know the facts.

The truth has been the main casualty in the debate about Labour’s spending record. The Tories and the LibDems both supported Labour’s spending plans before the banking crash, and I don’t recall them resisting the investment of vast amounts of public money in saving the banks. Personally, I can say that if Gordon Brown hadn’t acted decisively and astonishingly bravely on the night that the Royal Bank of Scotland went down then I wouldn’t have been able to get any money out of the hole in the wall the next day. Those that have been most critical in 2015 of Labour’s spending had nothing whatsoever to say about it at the time, pre-crash or post-crash.

So ‘Labour profligacy’ became a major election issue, created by the Tories and fanned by the media. The public believed it to be true. But what are the facts?

Monimbo99 has shown before on Red Brick that Total Managed Expenditure as a proportion of GDP was lower under Labour than under the Tories for the first seven years of the Blair/Brown era, and only rose above it by about one percentage point for four further years, until the banking crisis in 2008/09 when both government borrowing and government debt shot up as a proportion of GDP.

If we compare public spending (always as a percentage of GDP) across recent governments, the last Labour government turns out to be the least profligate, even compared with the Thatcher-Major governments (graph taken from Colin Talbot’s Whitehall Watch blog).

Public spending as percentage of GDP under different governments (1965-2015)

Monimbo99 concluded his prescient blog by saying: “The figures underline the point that Labour in power achieved much without historically high levels of spending, until hit by the (global) economic crisis.”

Although the most significant Tory scare story was about the imagined prospect of a Labour/SNP coalition, they also created and exploited an undercurrent of fear in the population about Labour’s spending plans in the future, based primarily on this distorted view of the past.

The argument about future spending plans was largely manufactured. After the election, Investment advisers Rathbones commented that “in recent weeks investors have been unfazed by the election and markets relatively becalmed.” Markets, they say, were so sanguine because, looking at the parties’ fiscal positions, “the difference in the fiscal position by 2020 would be negligible, especially within a global context.” Labour’s extra borrowing “would have been relatively immaterial at a macroeconomic level…… By the end of the next Parliament in 2020, this would mean only a 5% difference in public sector net debt to gross national income (GNI). The 77% under Labour (against 72% for the Tories) would still leave the UK with the second-lowest net debt to GDP in the G7 countries, well below the US and France. In spite of the rhetoric about austerity, there was little to choose between the two main parties, and investors reacted accordingly.”

Rathbones also remind readers that George Osborne “effectively abandoned austerity in 2011-12….. no doubt influenced by its electoral prospects.” And “we have some doubts about the Conservatives’ plans to revive austerity in 2017 and 2018.”

The point of all this is: Labour was stuffed in the election by lies about its economic record in government, and by lies about its future intentions. In the debate about the party’s future direction, and in the pitches being made by the various candidates, it would be awful to just capitulate to these terrible falsehoods.

8 Responses to Labour must nail the lies about the deficit and debt

I think this is right in terms of the figures, and, from memory, post 2008 problems were compounded by a a fall in tax revenues. However, the party failed miserably to defend its record in 2010 – the main article highlights the successes in dealing with the aftermath. We totally ceded the economic arguments to the Tories in 2010 so that in this campaign they had become the economic orthodoxy. We need to be much more assertive in the media – much as I dislike Alastair Campbell, he would not have allowed the Tory narrative to become the accepted view without more of a fight.

Thanks Steve. Fact is, public finances were pretty much in balance in Blair’s first term, but the deficit climbed to over 4% of GDP in the second and reached over 5% even before the crash (even though we were using PFI to shift a lot of investment off balance sheet!). Yes, you can make the case that this is respectable by historic standards, but at bottom this isn’t about history, it’s about credibility and trust. We went into the 2010 election with Darling’s promise to halve the deficit in 4 years; the Tories said they’d eliminate it in 5; the Coalition changed tack after 2012 and cut it by a third in their 5 years. We didn’t have a clear story about what we would have done ‘better’ or what we were going to do next – in the election, Labour had a well-known plan to borrow more than the Tories, but Ed M denied that debt would climb as a result. The question isn’t really whether the 2008 crisis would have been averted and/or more manageable had we kept public spending at 2001 levels – that’s one for economic history PhDs. The question is what we say from now to 2020 about the next decade – do we want to borrow, if so what for, is there a role (as Ken Livingstone argues) for some kind of ongoing QE? I hear Liz Kendall saying, not just that we overspent, but that we need to really examine what we expect the State to do and how we tackle the things the State can’t or won’t do. I think she is bravely asking us the right question at the right time.

To a degree the previous ” Be wary of those who say they already know why Labour lost” has started to address the same issue of the ‘false’ economic mantra peddled by the Tories, the media (and some senior Labour people who should have known better). And of course who started it? Liam Byrne with his illjudged note left for his successor!
The issue is how we begin to address this myth, now, after 5 years of the Tories constantly repeating it. For sure, until we do we shall carry this modern mark of Cain arrount for years to come. We can’t rely on the media to play fair. We do at least require that the appropriate shadow spokespeople actually understand the economics of it and are strong enough to deliver the correct interpretation.

Labour have spent five years trying to win the argument that they didn’t spend too much, and I agree completely with you that this is the truth. However, unless they are confident they can win the case for what they did over the next five years they should abandon it. Austerity will be a non-issue in five years time. Labour can easily make the case the time for cuts is over, the time to start re-investing in public services is now. This won’t require them to revisit something that will have happened a decade earlier. The next Labour leader needs to win back trust in the economy, sometimes being right isn’t enough.

Steve, as always is so spot on. Why is it that Labour Party members outside parliament can recall Labour’s record with a degree of accuracy, while those who were in the Cabinet under the last Labour Government sound as though they have fallen for the same Tory propaganda as the 25% of the electorate that has put the Tories back in power? I despair!